Translation and Calculation of Translation Adjustment
On January 1, 20X4, Alum Corporation acquired DaSilva Company, a Brazilian subsidiary, by purchasing all the common stock at book value. DaSilva’s trial balances on January 1, 20X4, and December 31, 20X4, expressed in Brazilian reals (BRL), follow:
| January 1 , 20×4 | December 31, 20×4 | ||
Debit | Credit | Debit | Credit | |
Cash | BRL 62,000 |
| BRL 57,700 |
|
Accounts Receivable (net) | 83,900 |
| 82,000 |
|
Inventories | 95,000 |
| 95,000 |
|
Prepaid Insurance | 5,600 |
| 2,400 |
|
Plant and Equipment | 250,000 |
| 350,000 |
|
Accumulated Depreciation |
| BRL 67,500 |
| BRL 100,000 |
Intangible Assets | 42,000 |
| 30,000 |
|
Accounts Payable |
| 20,000 |
| 24,000 |
Income Taxes Payable |
| 30,000 |
| 27,000 |
Interest Payable |
| 1,000 |
| 1,100 |
Notes Payable |
| 20,000 |
| 20,000 |
Bonds Payable |
| 120,000 |
| 120,000 |
Common Stock |
| 80,000 |
| 80,000 |
Additional Paid-In Capital |
| 150,000 |
| 150,000 |
Retained Earnings |
| 50,000 |
| 50,000 |
Sales |
|
|
| 500,000 |
Cost of Goods Sold |
|
| 230,000 |
|
Insurance Expense |
|
| 3,200 |
|
Depreciation Expense |
|
| 32,500 |
|
Amortization Expense |
|
| 12,000 |
|
Operating Expense |
|
| 152,300 |
|
Dividends Paid |
|
| 25,000 |
|
Total | BRL538,500 | BRL538,500 | BRL1,072,100 | BRL1,072,100 |
Additional Information
1. DaSilva uses FIFO inventory valuation. Purchases were made uniformly during 20X4. Ending inventory for 20X4 is composed of units purchased when the exchange rate was $0.25.
2. The insurance premium for a two-year policy was paid on October 1, 20X3.
3. Plant and equipment were acquired as follows:
Date | Cost |
January 1, 20×1 | BRL200,000 |
July 10, 20×2 | 50,000 |
April 7, 20×4 | 100,000 |
4. Plant and equipment are depreciated using the straight-line method and a 10-year life, with no residual value. A full month’s depreciation is taken in the month of acquisition.
5. The intangible assets are patents acquired on July 10, 20X2, at a cost of BRL60,000. The estimated life is five years.
6. The common stock was issued on January 1, 20X1.
7. Dividends of BRL10,000 were declared and paid on April 7. On October 9, BRL15,000 of dividends were declared and paid.
8. Exchange rates were as follows:
January 1, 20×1 | BRL | = $0.45 |
July 10, 20×2 | BRL | = 0.40 |
October 1, 20×3 | BRL | = 0.34 |
January 1, 20×4 | BRL | = 0.30 |
April 7, 20×4 | BRL | = 0.28 |
October 9, 20×4 | BRL | = 0.23 |
December 31, 20×4 | BRL | = 0.20 |
20×4 average | BRL | = 0.25 |
Required
a.Prepare a schedule translating the December 31, 20X4, trial balance of DaSilva from reals to dollars.
b.Prepare a schedule calculating the translation adjustment as of the end of 20X4. The net assets on January 1, 20X4, were BRL280,000.
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